Bitcoin Forks: Protocol Changes, Upgrades, and Radical Changes on the Blockchain
A fork occurs when one blockchain splits into two blockchains in cryptocurrencies. When an update to the blockchain protocol is issued, but not all of the network participants, or nodes, agree to embrace it, a split occurs in the network (Bitcoin Forks).
When one blockchain is split into two, it is called a fork. When an update to the blockchain protocol is issued, but not all of the network participants, or nodes, agree to embrace it, a split occurs in the network.
A soft fork or a hard fork are the two sorts of forks that can occur in a blockchain. We’ll look at why forks arise and the differences between a Bitcoin soft fork and a Bitcoin hard fork in this article.
What is a Blockchain Fork?
To comprehend blockchain forks, it is necessary to first review the construction and operation of blockchains. Cryptocurrencies are based on blockchain, a groundbreaking technology that acts as a decentralized, public database of transactions.
When cryptocurrency transactions take place, they are bundled together as a block. New blocks are then processed, or validated, one by one, and added to the blockchain sequence, forming a chain of blocks.
When you send money from your bank account to a friend’s bank account in traditional banking, the bank functions as a central authority, subtracting funds from one account and adding them to another, ensuring the sender has enough money to complete the transaction.
The ruling power on the blockchain is decentralized. Nodes, or network members, must individually validate fresh blocks of transactions and reach a network consensus on the new fund allocation.
Nodes are critical for confirming new transactions and guaranteeing that funds are spent just once, preventing double-spending. A cryptocurrency network’s nodes are in charge of carrying out this unique verification process, which is defined by the network’s protocol.
To put it another way, the Bitcoin network is the total of all decentralized nodes that run the Bitcoin protocol.
Individual nodes upgrade and accept the new changes when a protocol is changed. A crypto fork occurs when some of the nodes reject the changes. The update in question is sometimes more or less voluntary, and other times it is required. A soft fork is an optional form of fork, while a hard fork is the only type that must be used.
What Is a Bitcoin Fork?
Problems with network scalability are an ideal way to demonstrate the difference between a Bitcoin soft fork and a Bitcoin hard fork. Around the year 2015, Bitcoin’s transaction throughput struggled to keep up with the rapid growth of its user base.
As more people started exchanging bitcoin, the network became progressively clogged with enormous transaction volumes, slowing down overall processing time.
The fear was that if nothing was done to speed up the process, Bitcoin transactions would eventually take days or weeks to clear, forcing users to pay higher fees to expedite transactions. Bitcoin’s scalability problem arose from the fact that neither situation was perfect.
Segregated Witness was one of the proposed solutions to the scalability problem (SegWit). SegWit works by decoupling signature data – proof of ownership of a specific cryptocurrency — from Bitcoin transactions and more efficiently rearranging that data in each block, resulting in faster transactions.
A soft fork, rather than a hard fork, is what SegWit is. Soft forks occur when a modification to the protocol’s software does not affect the network’s basic operation.
Because a soft fork is a non-mandatory update, each node on the network can choose whether or not to update their unique copy of the protocol, and all nodes in the network can continue to interact in either scenario.
Rejecting Bitcoin’s SegWit update, for example, did not result in the creation of a new blockchain or cryptocurrency (unlike the hard fork that generated Bitcoin Cash, which we’ll discuss later). Bitcoin software that is compatible with nodes that did not accept the SegWit protocol update is still running on nodes that did. A soft fork can be used in both directions.
Hard forks, on the other hand, happen when an upgrade is so fundamentally different from the prior version that it breaks the protocol’s backward compatibility.
The Bitcoin Cash (BCH) hard fork, which occurred in August of 2017, is a good example. The BCH hard fork attempted to address Bitcoin’s scalability issues, but it did so in a very different way than SegWit. Bitcoin’s maximum block size was increased from 1MB to 8MB in 2017 by several of the project’s key developers.
Most nodes that were configured and powered to mine 1MB blocks couldn’t rapidly or economically upgrade to start mining 8MB blocks after the 8MB update. Because of this philosophical divide in the Bitcoin community, a hard fork was executed, and a new cryptocurrency, Bitcoin Cash, was launched, rather than attempting to force an update to the existing protocol.
Nodes that accept the upgrade are moved to a new blockchain in the case of hard forks.
The coins on the new blockchain, which are given to successful miners, are distinct and distinct from the originals. Bitcoin Cash developed a separate Bitcoin Cash blockchain with its own BCH cryptocurrency when it was founded.
Before a hard fork, the blockchain is duplicated in its entirety, which means that anybody who owns the original coin will receive an equal quantity of the new money. That is exactly what happened in the instance of the Bitcoin Cash hard fork.
Why Do Bitcoin Forks Happen?
Accidental forks do happen, but they are uncommon. When two miners mine a block at about the same time, an unintended fork occurs. After the addition of following blocks, this type of fork is resolved. When one of the two blockchains becomes longer than the other, the network abandons the shorter chain, leaving orphaned blocks in its wake.
In reaction to a catastrophic defect or hack, an intentional fork is sometimes used to fix or resolve the protocol’s history.
For example, in 2016, a third-party Ethereum blockchain program (known as The DAO) was hacked, resulting in the theft of millions of dollars in ether. Ethereum engineers executed a hard fork to remove the hack from Ethereum’s ledger (and so refund the money to its rightful owners).
The “main” Ethereum blockchain became the newly constructed ledger, which eradicated the hack and refunded the stolen ether, while the Ethereum Classic (ETC) blockchain became a version of the ledger that contained the hack.
While the majority of users (including many of those who were hacked) favored the version of Ethereum that removed the hack, some users decided to stick with the original ledger in the form of ETC (in many cases because of strong convictions that blockchains should remain immutable).
Intentional forks are most typically the result of a community’s deliberate desire to add a new feature to an existing blockchain — or to otherwise substantially alter or improve its operation.
The aim to greatly boost the network’s ability to verify transactions more quickly was the fundamental driver for the Bitcoin Cash (BCH) hard fork. This worry is reflected in BCH’s structure, which features larger blocks and faster transaction speeds.
Everything else about Bitcoin’s protocol was still deemed desirable, so rather than creating a new blockchain from the ground up, the architects of BCH sparked a hard fork that implemented the block size adjustments they desired while keeping the rest of the protocol intact.
Along similar lines, many other cryptocurrency projects have originated as hard forks innovated off of the codebase of major cryptocurrencies such as Bitcoin, Ethereum, Dash (itself a Bitcoin fork), and more.